WFS Financial Reports Record Third Quarter Earnings
19 October 1999
WFS Financial Reports Record Third Quarter Earnings
IRVINE, Calif.--Oct. 19, 1999--WFS Financial Inc today reported record earnings of $12.7 million, or $0.49 per diluted share for the third quarter of 1999 compared with a net loss of $3.9 million, or $0.15 per diluted share for the same period a year earlier. For the nine months ended September 30, 1999, the Company recorded net income of $36.4 million, or $1.41 per diluted share compared with a net loss of $17.0 million, or $0.66 per diluted share for the same period a year ago. The improvement in this quarter's earnings was the result of lower losses on automobile contracts and higher origination growth.Credit loss experience for the third quarter of 1999 declined 148 basis points to 1.8% of average serviced automobile contracts compared with 3.3% a year earlier. For the nine months ended September 30, 1999, credit loss experience was 2.0% compared with 3.3% for the same period a year earlier. Contracts 30 days or more delinquent also improved 18% or $27.9 million to 2.5% of outstanding contracts at September 30, 1999 compared with 3.6% at December 31, 1998.
Originations of automobile contracts increased $206 million or 29% to $906 million for the third quarter of 1999 compared with $700 million for the same period a year earlier. For the year to date, originations increased $506 million or 25% to $2.5 billion compared with $2.0 billion a year ago. Prime quality originations represented approximately 70% of total contracts purchased during 1999 compared with 68% of total contracts purchased for all of 1998. As a result of higher contract originations, WFS' portfolio of serviced contracts reached $5.2 billion at September 30, 1999, up from $4.4 billion at December 31, 1998.
"We are pleased to have achieved our third consecutive quarter of record earnings," said Joy Schaefer, Chief Executive Officer. "Our record financial performance was driven by our continued improvement in credit loss experience and growth in automobile contract originations, which serves to validate our disciplined underwriting and growth strategies initiated over the past two years."
WFS securitized $1.0 billion of automobile contracts during the third quarter of 1999 and also increased its liquidity position by issuing $500 million in privately placed notes collateralized by automobile contracts through a conduit facility administered by Bank of America, NA.
Total revenues for the three months and nine months ended September 30, 1999 were $82.7 million and $225 million, respectively, compared with $39.5 million and $121 million for the same periods a year earlier. Major components of revenue include:
Servicing income, which is earned as WFS services contracts that have been securitized and sold, totaled $37.0 million and $106 million for the three and nine months ended September 30, 1999, respectively, compared with $21.3 million and $57.5 million for the same respective periods a year ago. Servicing income increased as a result of higher retained interest income resulting from significantly lower losses and a higher level of securitized contracts.
Net interest income totaled $25.5 million and $70.5 million for the three and nine months ended September 30, 1999, respectively, compared with $18.1 million and $44.1 million for the same respective periods a year earlier. Net interest income increased as more contracts were held on the balance sheet as the Company utilized the liquidity sources provided by its parent company and privately placed conduit financings.
Gain on sale of contracts was $20.3 million for the three months ended September 30, 1999 compared with no gain on sale recorded in the same quarter a year earlier since no securitization transaction was executed. The Company recorded $48.5 million in gain on sale of contracts for the nine months ended September 30, 1999 compared with $18.9 million a year earlier.
The provision for credit losses increased to $15.3 million and $31.3 million, respectively, for the three and nine months ended September 30, 1999 compared with $2.3 million and $9.4 million for the same periods a year earlier. The increase is the result of a higher level of contracts held on the balance sheet.
Operating expenses totaled $45.4 million and $130 million for the three and nine months ended September 30, 1999, respectively, compared with $39.5 million and $126 million for the same respective periods a year earlier. However, operating expenses as a percentage of average serviced contracts declined 70 basis points to 3.6% for the third quarter of 1999 compared with 3.8% for the same period a year earlier.
The financial schedules attached to this earnings release include tables presenting pro forma Portfolio-based earnings data. In the Consolidated Statements of Operations, the Company treats its securitization transactions as sales in accordance with generally accepted accounting principles ("GAAP"). At the time of sale, the Company records a gain equal to the present value of estimated future earnings from the portfolio of contracts sold.
The pro forma Portfolio-based Statements of Operations present the Company's results under the assumption that the securitization transactions are treated as financings as opposed to sales, and therefore, no gain on sale is recognized. Instead, the earnings on the contracts in the securitization trusts and the related financing costs are reflected over the life of the underlying pool of contracts. While the pro forma Portfolio-based Statements of Operations do not purport to present the Company's operating results in accordance with GAAP, the Company believes such presentation is an important performance measure of the Company's operations.
WFS is one of the nation's largest independent automobile finance companies. WFS specializes in the origination, securitization, and servicing of new and used automobile contracts through its nationwide relationships with automobile dealers. WFS provides an alternative source of financing for borrowers in the prime and non-prime credit quality sectors. Since 1985, WFS has securitized $14 billion of automobile contracts in 45 transactions making it the fourth largest issuer in the U.S. WFS maintains a web site at http://www.wfsfinancial.com that contains further information.
Please note that Year 2000 planning, assessment, renovation, validation, and implementation are iterative processes. All statements made in this document are based on the Company's reasonable belief, knowledge and investigation, and the Company believes it is taking reasonable steps to address the Year 2000 issues within its control. However, the Company makes no representation that all of its systems or those of its service providers will be Year 2000-compliant or that Year 2000 issues will not adversely affect the Company.
This document may contain forward-looking statements regarding: the expectations, intentions, and estimations of, among other things, the cost of remediations, the timing of projects, the testing of systems, and plans for projections of future events. These forward-looking statements involve risks or uncertainties, and actual results may differ from anticipated results. These risks and uncertainties may involve, among other things, unanticipated problems in computer systems and applications and unexpected events or delays.
This news release contains forward-looking statements. These forward-looking statements are subject to many risks and uncertainties that could cause actual results to differ significantly from historical results or from those anticipated by us. The most significant risks and uncertainties the Company faces are the level of chargeoffs, as an increase in the level of chargeoffs will decrease its earnings; the Company's ability to originate new contracts in a sufficient amount to reach its needs, as a decrease in the amount of contracts it originates will decrease its earnings; a decrease in the difference between the average interest rate the Company receives on contracts it originates and the rate of interest it must pay to fund its cost of originating such contracts, as a decrease will reduce its earnings; the continued availability of sources of funding for its operations, as a reduction in the availability of funding will reduce its ability to originate contracts; maintaining the level of operating costs; as an increase in those costs will reduce its net earnings; and Year 2000 issues, as a disruption of its funding and collection efforts as a result of Year 2000 problems or an increase in its costs to correct Year 2000 issues will reduce earnings.
There are other risks and uncertainties the Company faces, including the effect of changes in general economic conditions and the effect of new laws, regulations and court decisions. You are cautioned not to place undue reliance on forward-looking statements. WFS undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
WFS FINANCIAL INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
(Dollars in thousands, except per share amounts)
REVENUES:
Interest income $ 34,324 $ 25,809 $ 96,575 $ 59,002
Interest expense 8,873 7,666 26,033 14,928
Net interest income 25,451 18,143 70,542 44,074
Servicing income 37,009 21,342 105,503 57,490
Gain on sale of
contracts 20,251 48,506 18,949
TOTAL REVENUES 82,711 39,485 224,551 120,513
EXPENSES:
Provision for
credit losses 15,347 2,291 31,304 9,389
Operating expenses
Salaries and
employee benefits 28,975 22,902 83,901 74,152
Credit and
collections 4,983 5,404 16,239 15,007
Miscellaneous 11,416 11,223 30,107 36,342
TOTAL OPERATING
EXPENSES 45,374 39,529 130,247 125,501
Restructuring
charge 4,500 15,000
TOTAL EXPENSES 60,721 46,320 161,551 149,890
INCOME (LOSS) BEFORE
INCOME TAX (BENEFIT) 21,990 (6,835) 63,000 (29,377)
Income tax (benefit) 9,278 (2,887) 26,552 (12,379)
NET INCOME (LOSS) $ 12,712 $ (3,948) $ 36,448 $ (16,998)
NET INCOME (LOSS)
PER COMMON SHARE
BASIC $ 0.49 $ (0.15) $ 1.42 $ (0.66)
DILUTED $ 0.49 $ (0.15) $ 1.41 $ (0.66)
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING
BASIC 25,737,786 25,708,611 25,721,295 25,708,611
DILUTED 25,881,676 25,708,611 25,882,197 25,708,611
WFS FINANCIAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
Sept. 30, 1999 Dec. 31, 1998
(Dollars in thousands)
ASSETS
Short term investments $ 39,321 $ 15,020
Contracts receivable 67,929 70,814
Contracts held for sale 1,194,820 825,257
Allowance for credit losses (34,866) (11,246)
Contracts receivable, net 1,227,883 884,825
Amounts due from trusts 419,808 332,732
Retained interest in
securitized assets 174,472 171,230
Premises and
equipment, net 35,755 26,482
Accrued interest receivable 8,481 5,859
Other assets 8,506 8,192
$ 1,914,226 $ 1,444,340
LIABILITIES
Notes payable -- parent $ 184,008 $ 160,000
Line of credit -- parent 333,778 554,836
Note payable 500,000
Amounts held on behalf
of trustee 659,406 528,092
Other liabilities 37,840 37,071
1,715,032 1,279,999
SHAREHOLDERS' EQUITY
Common stock, (no par
value; authorized
50,000,000 shares;
issued and outstanding
25,756,054 shares in
1999 and 25,708,611
in 1998) 73,892 73,564
Paid-in capital 4,000 4,000
Retained earnings 121,763 85,315
Accumulated other
comprehensive (loss)
income, net of tax (461) 1,462
199,194 164,341
1,914,226 1,444,340
WFS FINANCIAL AND SUBSIDIARIES
OTHER SELECTED FINANCIAL DATA (UNAUDITED)
(Dollars in thousands)
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
1999 1998 1999 1998
CONTRACT
ORIGINATIONS $ 906,351 $ 700,258 $ 2,528,415 $ 2,022,798
CONTRACT
SECURITIZATIONS $ 1,000,000 $ $ 2,000,000 $ 1,185,000
SERVICED
DELINQUENCY Sept. 30, 1999 Dec. 31, 1998
Number of Number of
Loans Amount Loans Amount
Serviced
portfolio (1) 513,488 $ 5,152,194 464,257 $ 4,367,099
Period of
delinquency
31-59 days 11,283 $ 90,800 13,885 $ 112,208
60-89 days 3,482 28,879 3,966 32,100
90 days or
more 1,419 11,220 1,768 14,441
Total contracts
delinquent 16,184 $ 130,899 19,619 $ 158,749
Delinquencies as
a percentage of
number and amount
of contracts
outstanding 3.15% 2.54% 4.23% 3.64%
SERVICED CONTRACT
LOSS EXPERIENCE Three Months Ended Nine Months Ended
Sept. 30, 1999 Sept. 30, 1999
1999 1998 1999 1998
Contracts
serviced at
end of period $ 5,152,194 $ 4,246,814 $ 5,152,194 $ 4,246,814
Average contracts
serviced during
the period $ 4,981,641 $ 4,144,618 $ 4,701,213 $ 3,935,742
Gross chargeoffs $ 33,260 $ 43,989 $ 106,661 $ 124,901
Recoveries 10,654 9,803 35,705 26,196
Net chargeoffs $ 22,606 $ 34,186 $ 70,956 $ 98,705
Net chargeoffs as
a percentage of
Contracts
outstanding
during period 1.82% 3.30% 2.01% 3.34%
(1) At end of period, net of unearned discount and includes
contracts held for sale.
WFS FINANCIAL INC. AND SUBSIDIARIES
PORTFOLIO BASED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
1999 1998 1999 1998
(Dollars in thousands)
Interest income $ 166,675 $ 137,849 $ 467,450 $ 392,763
Interest expense 76,820 66,568 216,787 191,847
Net interest income 89,855 71,281 250,663 200,916
Provision for
credit losses (1) 28,002 37,058 85,571 115,874
Net interest income
after provision
for losses 61,853 34,223 165,092 85,042
Other income 12,267 9,076 33,173 27,780
Operating expenses 46,964 40,638 135,114 129,715
Restructuring charge 4,500 15,000
Income (loss) before
income tax
(benefit) 27,156 (1,839) 63,151 (31,893)
Income tax
(benefit) (2) 11,457 (777) 26,615 (13,439)
Portfolio based
net income
(loss) $ 15,699 $ (1,062) $ 36,536 $ (18,454)
Portfolio based
net income (loss)
per common share
- diluted $ 0.61 $ (0.04) $ 1.41 $ (0.72)
(1) Provision for credit losses is based upon actual chargeoffs and
growth in the servicing portfolio for the respective period.
(2) Such tax effect is based upon the Company's tax rate for the
respective period.
WFS FINANCIAL INC. AND SUBSIDIARIES
PORTFOLIO BASED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
1999 1998 1999 1998
(Dollars in thousands)
PORTFOLIO BASED
YIELD TABLE
Interest income 13.4% 13.3% 13.3% 13.3%
Interest expense 6.2% 6.4% 6.1% 6.5%
Net interest income 7.2% 6.9% 7.2% 6.8%
Provision for credit
losses (1) 2.2% 3.6% 2.4% 3.9%
Net interest income
after provision
for losses 5.0% 3.3% 4.8% 2.9%
Other income 1.0% 0.9% 0.9% 0.9%
Operating expenses 3.8% 4.0% 3.9% 4.4%
Restructuring charge 0.4% 0.5%
Income (loss) before
income tax (benefit) 2.2% (0.2%) 1.8% (1.1%)
Income tax (benefit) 0.9% (0.1%) 0.8% (0.5%)
Portfolio based net
income (loss) 1.3% (0.1%) 1.0% (0.6%)
Average serviced
contracts $ 4,981,614 $ 4,144,618 $ 4,701,213 $ 3,935,742
(1) Provision for credit losses is based upon actual chargeoffs and
growth in the servicing portfolio for the respective period.
(2) Such tax effect is based upon the Company's tax rate for the
respective period.
WFS FINANCIAL AND SUBSIDIARIES
CUMULATIVE STATIC POOL LOSS CURVES
AT SEPT. 30, 1999
Period 1995-4 1995-5 1996-A 1996-B 1996-C 1996-D
----------------------------------------------------------------------
1 0.00% 0.01% 0.00% 0.01% 0.00% 0.02%
2 0.06% 0.09% 0.06% 0.09% 0.09% 0.10%
3 0.16% 0.16% 0.17% 0.20% 0.22% 0.24%
4 0.31% 0.32% 0.29% 0.35% 0.52% 0.44%
5 0.52% 0.48% 0.48% 0.61% 0.74% 0.71%
6 0.70% 0.62% 0.63% 0.88% 0.98% 0.93%
7 0.86% 0.78% 0.81% 1.14% 1.27% 1.16%
8 1.02% 0.98% 1.08% 1.42% 1.52% 1.43%
9 1.13% 1.16% 1.35% 1.67% 1.77% 1.72%
10 1.26% 1.32% 1.63% 1.91% 1.98% 2.03%
11 1.41% 1.54% 1.87% 2.18% 2.21% 2.34%
12 1.52% 2.01% 2.06% 2.38% 2.49% 2.62%
13 1.66% 2.03% 2.28% 2.58% 2.73% 2.97%
14 1.86% 2.25% 2.47% 2.79% 2.99% 3.27%
15 2.07% 2.41% 2.63% 2.95% 3.21% 3.53%
16 2.26% 2.59% 2.79% 3.14% 3.47% 3.79%
17 2.47% 2.77% 2.97% 3.38% 3.70% 4.02%
18 2.59% 2.88% 3.12% 3.55% 3.94% 4.19%
19 2.72% 3.00% 3.31% 3.80% 4.18% 4.43%
20 2.88% 3.12% 3.49% 3.98% 4.36% 4.65%
21 2.95% 3.24% 3.63% 4.14% 4.53% 4.80%
22 3.04% 3.39% 3.80% 4.31% 4.67% 5.07%
23 3.13% 3.53% 3.95% 4.46% 4.84% 5.27%
24 3.22% 3.64% 4.10% 4.58% 5.01% 5.47%
25 3.30% 3.72% 4.22% 4.74% 5.17% 5.65%
26 3.37% 3.83% 4.33% 4.87% 5.34% 5.80%
27 3.47% 3.95% 4.41% 4.98% 5.50% 5.91%
28 3.50% 4.08% 4.51% 5.11% 5.67% 5.98%
29 3.58% 4.16% 4.60% 5.21% 5.78% 6.06%
30 3.65% 4.25% 4.70% 5.31% 5.89% 6.12%
31 3.75% 4.31% 4.79% 5.42% 5.98% 6.17%
32 3.80% 4.35% 4.85% 5.50% 6.02% 6.24%
33 3.83% 4.40% 4.91% 5.55% 6.06% 6.29%
34 3.87% 4.46% 4.99% 5.58% 6.11% 6.34%
35 3.91% 4.54% 5.03% 5.60% 6.14%
36 3.94% 4.58% 5.07% 5.62% 6.16%
37 3.96% 4.61% 5.11% 5.65% 6.17%
38 3.99% 4.64% 5.11% 5.68%
39 4.01% 4.66% 5.12% 5.70%
40 4.04% 4.69% 5.12% 5.71%
41 4.06% 4.69% 5.13%
42 4.07% 4.69% 5.13%
43 4.07% 4.68% 5.13%
44 4.07% 4.68%
45 4.06% 4.68%
46 4.05% 4.68%
47 4.05%
48 4.05%
49 4.03%
Period 1997-A 1997-B 1997-C 1997-D 1998-A 1998-B
----------------------------------------------------------------------
1 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
2 0.08% 0.06% 0.05% 0.05% 0.04% 0.02%
3 0.20% 0.15% 0.12% 0.14% 0.11% 0.08%
4 0.36% 0.33% 0.29% 0.31% 0.25% 0.18%
5 0.62% 0.56% 0.46% 0.56% 0.44% 0.38%
6 0.85% 0.77% 0.67% 0.75% 0.66% 0.59%
7 1.12% 1.10% 0.93% 0.99% 0.95% 0.83%
8 1.45% 1.40% 1.16% 1.24% 1.23% 1.03%
9 1.70% 1.70% 1.37% 1.47% 1.50% 1.21%
10 2.02% 2.00% 1.66% 1.75% 1.79% 1.40%
11 2.32% 2.22% 1.94% 2.06% 2.03% 1.53%
12 2.61% 2.43% 2.16% 2.35% 2.21% 1.62%
13 2.92% 2.66% 2.40% 2.63% 2.39% 1.74%
14 3.14% 2.91% 2.65% 2.86% 2.49% 1.84%
15 3.30% 3.15% 2.90% 3.05% 2.60% 1.96%
16 3.55% 3.47% 3.15% 3.19% 2.72% 2.10%
17 3.77% 3.77% 3.36% 3.32% 2.85%
18 3.94% 3.97% 3.55% 3.42% 2.98%
19 4.21% 4.20% 3.70% 3.50% 3.11%
20 4.40% 4.39% 3.81% 3.60%
21 4.59% 4.53% 3.91% 3.69%
22 4.81% 4.67% 4.00% 3.81%
23 5.00% 4.75% 4.11%
24 5.14% 4.81% 4.21%
25 5.24% 4.88% 4.30%
26 5.33% 4.94%
27 5.39% 5.04%
28 5.44% 5.11%
29 5.50%
30 5.56%
31 5.64%
Period 1998-C 1999-A 1999-B
--------------------------------------
1 0.00% 0.00% 0.00%
2 0.04% 0.04% 0.04%
3 0.11% 0.11% 0.11%
4 0.23% 0.20%
5 0.39% 0.33%
6 0.50% 0.46%
7 0.61% 0.62%
8 0.75% 0.76%
9 0.86%
10 1.00%
11 1.17%